Homeowner’s Insurance Reform Act of 2013

An Insurance Research Council Study done in the fall of 2012 showed that for the first time Colorado ranks among the top ten states with catastrophe-related claims. Floods, tornadoes, hail storms and wildfires have caused massive losses and claims for the last six years in Colorado. Many homeowners are unaware of what their homeowner’s insurance covers or opt not to get extra coverage to cover their homes from natural disasters.

With the recent floods in Colorado, many homeowners were unaware that their homeowner’s insurance did not cover floods and others decided to not include it on their policy since they thought it was not necessary. The average cost for adding flood coverage to a homeowner’s policy is about $650 a year. FEMA spokesperson Jerry DeFelice recently said in an interview that statewide, only about 22,000 homeowners have flood insurance and with 2.2 million housing units in Colorado, that means that about 1 percent of the state’s residences have flood coverage.

Due to the numerous catastrophe-related claims, there was a desire to create legislation that addressed the problems created by the losses experienced in the state of Colorado. On May 10th, 2013, Governor Hickenlooper signed into law the Homeowners Insurance Reform Act of 2013.

What Does the Homeowner’s Reform Act Regulate?HB-1225 requires insurers to provide mandatory policy updates every two years and mandates that policies be written in plain language. It also gives homeowners more time to make claims and gives the opportunity for increased living expenses.

Changes that will go into effect on January 1st, 2014
Homeowner’s home insurance policy will see the following changes:
1) Every “Replacement Cost” policy offered for purchase or renewal must include an option for, at minimum:
a) Extended Replacement Cost Coverage of at least 10% of the Dwelling Policy Limit (additional dollars available in the event of the need to rebuild). Extended Replacement Cost Coverage pays a designated amount above the policy limit to replace a damaged structure if necessary under current building conditions.
b) Law and Ordinance Coverage in the amount of at least 25% of the Dwelling Policy Limit (also additional dollars available in the event of the need to rebuild). Law and Ordinance Coverage is defined as coverage for increased costs of demolition, construction, renovation, or repair associated with the enforcement of building ordinances and laws.

2) Every “Replacement Cost” policy offered for purchase in Colorado for a “Dwelling” must include at least 12 months of “Loss of Use” (Additional Living Expenses or ALE) coverage. (In the event it is necessary after a covered loss to be out of the home due to evacuation, repairs, or replacement). A “dwelling” means a single-family home, other than a mobile home, condominium, or manufactured home, that is used as a primary residence by the owner of the dwelling.The law requires insurers to offer the homeowner the option of buying 24 months of ALE. Most homeowners after losing a home are out of their homes for more than a year.

3) Bill voids any provision in a homeowner’s policy that requires the policyholder to sue the insurer in the case of any dispute within a shorter period of time than allowed for by the applicable statute of limitations.

Provisions of the Act that will go into effect on January 1st, 20151) All endorsements, disclosure forms, and policies must not exceed the 10th grade reading level, as measured by the Flesch-Kincaid Grade Level Formula. Insurers shall revise all policies issued or renewed in Colorado after January 1, 2015, to meet these standards.

2) The insurer must consider an estimate from a licensed contractor or architect submitted by the policyholder as the basis for establishing the replacement cost of a dwelling.

3) The insurer must give the policyholder an electronic or paper copy of the entire policy including the declaration page and any endorsements within 3 business days after a loss, and upon request, a “certified copy” within 30 days.

4) In the event of an insured total loss, the insurer must offer a minimum of 30% of your contents limits without making the homeowner submit a detailed itemized inventory list.

5) The insurer must make available to the policyholder the methodology used for depreciating the value of the personal property of the homeowner.

6) The policyholder has at least a full year after a total loss to submit an inventory of lost or damaged property.

7) The policyholder has a minimum of 365 days after the Additional Living Expense (ALE) benefits are used to replace property and recoup depreciation by collecting full replacement value.

8) Insurance agents and brokers must take at least three hours of continuing education on homeowner coverages during a two-year period.

9) A summary disclosure must be given to policyholders annually including statements that
a) The policyholder is responsible for selecting the amount of coverage
b) The policyholder is responsible for assessing improvements to the home and notifying the
insurer;
c) The policyholder may purchase additional coverage with appropriate documentation
d) The policyholder should update the inventory of contents regularly and store the inventory
off-site.

Please contact your current insurance company with any questions you may have on how the new Act will affect your current policy and any other questions you may have regarding your policy. It is important to follow up with your insurance company once a year to go over your coverage.